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Why do most traders lose money?

The common saying is that 90% of traders lose money in the markets. It’s not an encouraging statistic for someone who wants to start trading, but there are a few main reasons why most traders lose and knowing them can help you avoid the same mistakes and increase your chances of success. .

The first mistake is jumping into the markets unknowingly. It’s like gambling and if you don’t know what you’re doing and why, then you won’t survive long. Just look at how many retail traders jumped into the markets during the covid crisis.

There are stories of lucky people who change their lives for the better yes, but they are very rare compared to those who lose all their savings or worse who have to pay off huge debts by playing with the money they did not have. In the chart below, you can see how in just two years retail marketers have gone from heroes to zeros.

The second mistake is receiving poor education from social media influencers whose goals are simply to sell courses and trading signals. You have to be careful when investing in education because “an investment in knowledge pays the best interest”, but an investment in bad education is deadly in trade. You better find some free resources and get at least some basic knowledge first, then if you want to invest in a trading course or community, be sure to do your due diligence before committing. Friendly advice: Avoid anything that focuses on technical analysis.

Once you have knowledge, you need capital. The rule of thumb is to invest/trade only the money you can afford to lose. Do NOT exchange money you need to pay bills or to live in general. If you do this, you will already be setting yourself up for failure because the psychological pressure will be so high that you will easily make any type of emotional mistake, from fear of missing out to revenge trading. Statistically, more than 50% of new businesses fail due to undercapitalization. Avoid this mistake and you will be one step ahead of the majority.

Even if you get the knowledge, skills and capital, the last thing you need is experience. Real life experience cannot be learned, it is something that is acquired through practice and mistakes. He is the best teacher for everything in life.

Yes, you can learn something from the experience of others, but nothing can replace your own. In fact, many successful traders study past experiences to better predict the future. A famous saying by Mark Twain says that “history does not repeat itself, but it often rhymes” and it also happens in financial markets. The business cycle repeats many times and the market most of the time follows the same pattern of boom and bust.

A recent example is the poor performance of equities when the Fed in 2018 was running QT and global growth was slowing. We are now in 2022, the Fed is starting a QT, global growth is slowing a lot and equities are in a bear market…

This article was written by Giuseppe Dellamotta.


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